I started this blog after completing my MBA. It is about Portfolio / Asset / Fund Management and Investment Banking. Anyone who has studied Corporate Finance will be tempted to jump into the field. I did give it a thought at one time, too. Cheers! Gerry. gerrysom@yahoo.com

Thursday, January 3, 2013

Hedge fund management firms are usually owned by their portfolio managers, who are therefore entitled to any profits that the business makes. As management fees are intended to cover the firm's operating costs, performance fees (and any excess management fees) are generally distributed to the firm's owners as profits. Many managers also have large stakes in their own funds.

Top hedge fund managers earn what has been termed "extraordinary" amounts of money, with the highest-grossing getting up to $4 billion per year.Earnings at the top are far higher than in any other sector of the financial industry.

They wouldn't even consider getting out of bed for the $13m (£8m) Goldman Sachs' boss Lloyd Blankfein was paid last year," writes Richard Anderson, a BBC Business reporter. Collectively, the top 25 hedge fund managers regularly earn more than all 500 of the chief executives in the S&P 500.

Most hedge fund managers are remunerated much less, however, and the competitiveness of the industry, along with the structure of financial incentives, means that failure can lead to not getting paid. The BBC quotes an industry insider who says "a lot of managers are not making any money at all."

In 2011, the top manager earned $3,000m, the tenth earned $210m and the 30th earned $80m. In 2011, the average earnings for the 25 highest compensated hedge fund managers in the United States was $576 million.

According to Absolute Return + Alpha, in 2011 the mean total compensation for all hedge fund investment professionals was $690,786 and the median compensation was $312,329. The same figures for hedge fund CEOs were $1,037,151 and $600,000, and for chief investment officers were $1,039,974 and $300,000.

Of the 1,226 people on the Forbes World's Billionaires list for 2012, 36 of the financiers listed "derived significant chunks" of their wealth from hedge fund management. Among the richest 1,000 people in the United Kingdom, 54 were hedge fund managers, according to the Sunday Times Rich List for 2012. (Funds do not tend to report compensation. Published lists of the amounts earned by top managers use estimates based on factors such as the fees charged by their funds and the capital they are thought to have invested in them.)